Categories: Base Metals / Energy / General Market Commentary / Precious Metals
Topics: General Base Metals / General Energy / General Market Commentary / General Precious Metals

Market volatility means cash is king for mining and metals companies

Market volatility means cash is king for mining and metals companies

Capital considerations dominate the top three business risks in the mining and metals sector, according to EY’s Top 10 business risks facing mining and metals 2016-2017 report.

“Much like our global counterparts, Canadian mining and metals companies are facing challenges amid prolonged volatility in the sector,” says Bruce Sprague, EY’s Canadian Mining & Metals Leader. “Companies who proactively mitigate risks with a well-managed and cost-effective end-to-end value chain, will be best positioned for growth.”

Cash optimization replaces “switch to growth” — which fell from first to sixth position — as the top risk in the 2016-2017 report. The switch comes as mining and metals companies increase their focus on cash to maintain strong balance sheets and plan for longer-term profitability.

Capital access moves to second in risks ranking
The last couple years have seen a sharp decline in loan finance to the sector. In 2015, capital raised was down by 10% year-over-year. Securing funding and credit terms has been particularly challenging as traditional forms of debt and equity aren’t readily available in today’s market. Globally, debt markets are expected to improve more rapidly than equity markets. In Canada, equity markets are expected to remain subdued, with the potential risk of shareholder dilution due to placements or rights issues brought on by companies facing financial distress.

“Unless the commodity pricing environment improves, we expect the cost of capital to remain elevated,” says Sprague. “As companies plan for the future, sourcing alternative finance options and raising capital is crucial.”

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